Sensex sheds 116 points post RBI meet; midcaps, smallcaps gain

02 December 2014

The market fell further on Tuesday after Reserve Bank of India kept policy rates unchanged and the government increased excise duty on petrol & diesel. However, the fall was limited due to positive global cues.

The 30-share BSE Sensex declined 115.61 points to close at 28444.01 and the 50-share NSE Nifty slipped below the 8550, down 31.20 points to 8524.70, weighed down by technology, auto and HDFC group stocks.

However, the broader markets outperformed benchmarks with the BSE Midcap and Smallcap indices rising 0.9 percent and 0.55 percent, respectively.

Experts believe it was a consolidation day today. The market seems confident of likely rate cut in early 2015 following indication from the RBI governor Raghuram Rajan, said experts.

Andrew Holland of Ambit Investment continued to be extremely bullish on India. He has a Sensex target of 45000 over the next three years and believes the Nifty will hit 9000 before the Budget.

The big news of the day was that the Reserve Bank of India kept key rates unchanged in its fifth bimonthly monetary policy review, but cut the March 2015-end CPI inflation target to 6 percent from 8 percent earlier.

RBI governor Raghuram Rajan said change in monetary policy stance now would be premature, adding RBI may change stance in early 2015 if inflation falls to 6 percent.

''By not cutting rates the RBI has remained consistent in their policy objective of decisively bringing down inflation and long term inflationary expectations,'' said Arvind Sethi, MD & CEO, TATA Asset Management.

He adds that lower post policy bond yields show that the market feels more confident that eventually rates will be much lower.

According to Sethi, the recent core growth and PMI data also support RBI's view that the current level of interest rates is not the main problem affecting growth, and therefore a rate cut at this point would have been premature. However, he believes the rate cut is likely around budget time, if the government is able to hold the deficit to around 4.1 percent.

The government on Monday said October eight core industries' growth stood at 6.3 percent against 1.9 percent in September, aided by coal, natural gas, electricity, fertiliser, crude oil and petroleum refinery products output.

Oil marketing companies like BPCL, HPCL and IOC were down 4.3 percent, 1.6 percent and 2.55 percent, respectively after the government hiked excise duty on petrol by Rs 2.25 per litre and diesel by Re 1 per litre.

The 30-share BSE Sensex fell 115.61 points to close at 28444.01 and the 50-share NSE Nifty declined 31.20 points to 8524.70. However, the broader markets outperformed benchmarks with the BSE Midcap and Smallcap indices rising 0.9 percent and 0.55 percent, respectively.

About 1528 shares have advanced, 1407 shares declined, and 121 shares are unchanged on the Bombay Stock Exchange.

BPCL shed 4.27 percent after the government increased excise duty on petrol by Rs 2.25 per litre and diesel by Re 1 per litre. Asian Paints lost 3.4 percent on profit booking and rise in Brent crude oil prices.

02:30pm FII ViewBharat Iyer, JPMorgan says India has been the best performing emerging market, with 30 percent gain this year so far in the MSCI USD index.

''Most sectors have seen a notable re-rating in valuations and in an environment of improving investor sentiment and supportive liquidity, the search for value has increased. Energy, industrials and consumer staples rank low on the composite relative ranking while financials, consumer discretionary and telecom sectors rank high,'' he adds.

02:15pm 3G spectrum auction in February?As the government plans to conduct 3G spectrum auction along with 2G radiowaves sale in February, it has asked telecom regulator TRAI to expedite the base price recommendations for it.

"DoT requested TRAI to expedite the process for its recommendations on the reserve price of 2100 Mhz band and related issues so that the auction of spectrum in this band could be conducted along with the auction of spectrum in the 800/900/1800 MHz bands scheduled in February 2015," TRAI said.

In the consultation paper today for valuation and reserve price of spectrum in 2100 MHz band, used for 3G services, the regulator has said that the Department of Telecom is in talks with the Defence Ministry for the vacation of the band and there are three possible scenarios under deliberation.

02:00pm Market CheckIt's a choppy day on the Dalal Street as the benchmark indices traded with a cut of 0.2 percent while midcaps outperform with gains of 0.6 percent.

The BSE Sensex declined 53.36 points to 28506.26 and the NSE Nifty slipped 15.65 points to 8540.25. About 1380 shares have advanced, 1397 shares declined, and 127 shares are unchanged on the Bombay Stock Exchange.

Andrew Holland of Ambit Investment continued to be extremely bullish on India. He has a Sensex target of 45000 over the next three years and believes the Nifty will hit 9000 before the Budget.

The government has increased the excise duty on petrol and diesel for the second time in the last one month. Excise on petrol increased by Rs 2.25 per litre and on diesel by Re 1 per litre. Oil marketing companies like BPCL, HPCL and IOC declined three percent each.

Global markets are upbeat today. China's Shanghai ended higher with 3 percent gain while European markets like FTSE, CAC and DAX are higher by almost 1 percent. Rebound in oil prices and hopes of more stimulus from China kept these markets active.

01:40pm OMCs under pressureGovernment sources told CNBC-TV18 that excise tax on petrol increased by Rs 2.25 per litre and diesel by Re 1 a litre.

BPCL, HPCL and IOC fell 3 percent each.

01:25pm Market ExpertThe Nifty is likely to hit 9000 by Budget in late February, feels Andrew Holland of Ambit Investment Advisors. In an interview with CNBC-TV18, he says the Sensex is likely to hit 45,000 in the next three years.

Holland is not bullish on PSU banks from a long term perspective, though he has become constructive on the banking space near term. Holland sees the RBI cutting interest rates in the March quarter.

He expects crude prices to decline further as he feels it is more of a demand issue than a supply problem. Holland feels the best way to play the oil story would be to bet on companies building oil & gas pipelines across the country.

He expects a global sell-off in January on economic growth concerns. Should global markets crack, India will not be immune to it, cautions Holland. But he says any steep decline will be a good buying opportunity.

01:00pm Market CheckThe market turned choppy after Reserve Bank of India (RBI) kept rates unchanged in its fifth bimonthly monetary policy review. The Nifty and the Bank Nifty recovered from the day's low after RBI's dovish stance spurred hope of a rate cut as early as March next year. The BSE Midcap outperformed, up half a percent.

The Sensex declined 59.77 points to 28499.85 and the Nifty fell 17.75 points to 8538.15. About 1236 shares have advanced, 1403 shares declined, and 116 shares are unchanged on the Bombay Stock Exchange.

The Reserve Bank of India cut the March-end CPI inflation target to 6 percent from 8 percent earlier. The governor Raghuram Rajan says change in monetary policy stance now would be premature, adding RBI may change stance in early 2015 if inflation eases.

The central bank further added that it would want to see pace of disinflationary process set in, before taking a decision and that moderate inflation is a must to sustain healthy growth. The governor says that the government is comfortable with median inflation aim of 4 percent.

Bajaj Auto fell over 1 percent after reporting weak November sales numbers that came in lower by 0.5 percent primarily owing to the slump in domestic sales which are down 19 percnet year-on-year. Mahindra & Mahindra slipped nearly 3 percent while Tata Motors, Maruti Suzuki and Hero Motocorp lost 0.7-1.3 percent.

Infosys declined 1.7 percent as the stock price adjusted for bonus issue in the ratio of one share for every one share held. Housing finance company HDFC slipped over a percent.

Railway haulage charges have increased by around 25 percent with effect from December 5. Macquarie believes there will be a shift in container volume mix in favour of roads. However, this will not impact realisation for GPPV as container terminal handling charges for railways and road containers are the same (EXIM volume would remain the same), says the brokerage.

According to the brokerage, the higher railway haulage charges (around 25 percent) would increase realisation for PRCL (Pipavav Railway Corporation is the 50:50 joint venture company of Indian Railways and the Gujarat Pipavav Port).

12:40pm Govt to review gold import normsReserve Bank of India (RBI) Governor Raghuram Rajan said the decision to scrap a rule mandating traders to export 20 percent of all gold imported into the country was a "reasonable" one and the government will review its gold import policies.

The RBI held interest rates steady as widely expected at its policy review today, but said it could cut interest rates by early next year depending on whether inflation eases further and on fiscal developments.

"The government decided that it was probably best at this point to scrap the rule and it has been scrapped," Rajan said during a media interaction post policy.

"Of course, there are now further requests to change the duty structure that the government will review in its own good time and decide ... I think the decision is reasonable and let us see how it plays out," he said, reports Reuters.

12:30pm Likely rate cutNomura is more sanguine on the inflation outlook relative to the RBI's targetof 6 percent by January 2016.

According to the brokerage, lower rural wages and the lagged impact of a negative outputgap should keep CPI inflation around 5.5 percent in 2015.

"Given the RBI's focus on fiscal developments as an initial condition, it is likely to watch the budget at end-February closely. As such, we expect no change at the next policy meeting either (February 3) and a possible cut in April (compared to our earlier expectation of rate cuts starting in June). All said, we continue to expect a total of 50 basis points of cuts in 2015, with rates remaining on hold thereafter," says Nomura.

12:15pm Expert view on RBI policyThe Reserve Bank of India Tuesday sounded a dovish note on its outlook for inflation, but the policy statement highlights some of the hurdles in the path of economic growth. Inflation may be easing, but growth is still not a given, is the impression one gets from a close reading of the document. Also, it could still take another quarter before RBI can a claim a decisive victory over inflation and lower interest rates.

12:00pm Market CheckEquity benchmarks remained under pressure after the RBI maintained status quo by keeping policy rates unchanged. But experts looked more hopeful of rate cut likely in April (especially after Budget) as RBI governor Raghuram Rajan says monetary policy stance may change in early 2015 if inflation eases.

According to the apex bank, over the next 12-month period, inflation is expected to retain some momentum and hover around 6 per cent, except for seasonal movements, as the disinflation momentum works through. Accordingly, the risks to the January 2016 target of 6 percent appear evenly balanced under the current policy stance, says the RBI.

11:58am RBI says the fiscal outlook should brighten because of the fall in crude prices, but weak tax revenue growth and the slow pace of disinvestment suggest some uncertainty about the likely achievement of fiscal targets, and the quality of eventual fiscal adjustment. The government, however, appears determined to stay on course, it adds.

Banks may be allowed to take over 10 percent equity in loan recasting, he adds.

11:45am The Sensex fell 75.47 points to 28484.15 and the Nifty declined 22.95 points to 8532.95. About 1173 shares have advanced, 1258 shares declined, and 102 shares are unchanged on the Bombay Stock Exchange.

11:40am RBI governor Raghuram Rajan says moderate inflation is a must to sustain healthy growth. "Once we are at 6 percent inflation, we are at edges of long-term target of 4 percent.

According to him, banking Regulation Act for new bank licences doesn't need changes.

11:35am RBI says Liquidity conditions have eased considerably in Q3 of 2014-15 due to structural and frictional factors, as well as the fine tuning of the liquidity adjustment framework.

"With deposit mobilisation outpacing credit growth and currency demand remaining subdued in relation to past trends, banks are flush with funds, leading a number of banks to reduce deposit rates. The main frictional source of liquidity has been the large release of expenditure/transfers by the government," it adds.

11:30am RBI says if the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year, including outside the policy review cycle.

11:25am Rajan says talks with government suggest things are on track w.r.t fiscal deficit. RBI wants more information on whether government can meet FY15 fiscal aim.

"We are not trying to manage long-term interest rates through open market operations," says Rajan.

11:20am The central estimate of projected growth for 2014-15 has been retained at 5.5 percent (GDP), with a gradual pick-up in momentum through 2015-16 on the assumption of a normal monsoon and no adverse supply/financial shocks, says RBI.

11:10am Over the next 12-month period, inflation is expected to retain some momentum and hover around 6 percent, except for seasonal movements, as the disinflation momentum works through, says the RBI.

Accordingly, the risks to the January 2016 target of 6 percent appear evenly balanced under the current policy stance, it adds.

11:05am RBI sees headline inflation fallingRBI says headline inflation has been receding steadily and current readings are below the January 2015 target of 8 percent as well as the January 2016 target of 6 percent.

"The inflation reading for November - which will become available by mid-December - is expected to show a further softening. Thereafter, however, the favourable base effect that is driving down headline inflation will likely dissipate and inflation for December (data release in mid-January) may well rise above current levels," it adds.

11:00am Market CheckEquity benchmarks continued to trade with marginal loss after on expected lines, the Reserve Bank of India kept policy rates unchanged. The 30-share BSE Sensex fell 61.15 points to 28498.47 and the Nifty declined 17.30 points to 8538.60.

About 1064 shares have advanced, 1221 shares declined, and 113 shares are unchanged on the Bombay Stock Exchange.

On the basis of an assessment of the current and evolving macroeconomic situation, the RBI has decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 8 percent and cash reserve ratio of scheduled banks unchanged at 4 percent of net demand and time liabilities (NDTL).

Consequently, the reverse repo rate under the LAF will remain unchanged at 7 percent, and the marginal standing facility (MSF) rate and the Bank Rate at 9 percent, said the RBI.

10:30am DLF under pressureShares of DLF fell more than a percent intraday Tuesday after Bank of America Merrill Lynch reinstated an underperform rating on the stock with a price target of Rs 130.

The prime reasons, according to the brokerage, are slow housing market recovery in Gurgaon; negative cash-flow; elevated debt levels; and legal issues.

BoAML does not expect a housing volume recovery in DLF's core market, Gurgaon in the near term. "Gurgaon's unsold inventory has risen exponentially over the past three quarters, indicating a significant slowdown in sales. We see weakness for three to four more quarters for DLF before a possible recovery becomes visible," the brokerage said.

The brokerage expects DLF to remain cash-flow negative through FY17E - lack of launches and higher costs (operating, finance and construction) should lead to cash deficiency.

It also sees DLF's debt levels to remain elevated in FY16E as well despite asset sales as proceeds from the sale will be used to offset the lack of cash.

According to the brokerage, a verdict against DLF in any of the ongoing legal issues (CCI, SEBI) can potentially dampen its brand equity and financial performance.

Upside risks include quicker market recovery, leading to better-than-expected launches/pre-sales, and pick-up in commercial leasing.

10:00am Market CheckEquity benchmarks continued to see marginal selling pressure as rate sensitives like banks and autos declined ahead of RBI credit policy.

Infosys lost 1.5 percent after adjusted for bonus issue in the ratio of one share for every one share held.

However, shares of Reliance Industries, ONGC, Larsen & Toubro and BHEL bounced back, up 0.5-1 percent. Power stocks like Tata Power and NTPC too rebounded with a percent gain.

Cairn India bounced back with more than a percent gain after Brent crude recouped some losses to trade at USD 72 a barrel from five-year low of around USD 68-69 a barrel. However, BPCL and Asian Paints fell 2-3 percent.

09:55am Infosys in focusShares of Infosys are trading ex-bonus today. The share price is became half of previous closing price as it adjusted for bonus issue in the ratio of 1:1. The stock fell as much as 2.7 percent intraday.

The software services firm, on October 10, has announced a bonus issue of one equity share for every equity share held. It said the issuance of bonus shares is in order to increase the liquidity of its shares and to expand the retail shareholder base.

The company has fixed record date as December 3, 2014 for the purpose of allotment of bonus shares/stock dividend.

09:35am FII ViewJyotivardhan Jaipuria, Bank of America Merrill Lynch says the brokerage house expects Brent crude prices to drop below USD 60 a barrel over the next six months.

''This reinforces our bullish view on markets in the longer term and we reiterate our view that the market will nearly double by 2018 and give a 15 percent return over next year,'' he adds.

The Indian rupee opened flat at 61.99 per dollar on Tuesday as against previous day's closing value of 62.02 a barrel.

US dollar nursed modest losses, having come under pressure as currencies such as the Canadian dollar staged a dramatic reversal thanks to a broad rebound in commodity prices.

Ashutosh Raina of HDFC Bank said, "All eyes today are on the RBI Credit Policy and the jury is completely divided on the prospects of a rate cut. Lower oil prices, and recent lower CPI and WPI inflation numbers make a case for the rate cut, but the impending impact of a higher base effect moving ahead may force RBI to adopt a wait and watch policy."

"The USD-INR pair is hovering around the 62/dollar mark, with markets keenly awaiting RBI Policy action," he added.

Meanwhile, all eyes today will be set on RBI governor Raghuram Rajan, as the Reserve Bank of India in its monetary policy review may announce a rate cut. An overwhelming majority expects a status quo but most market watchers also expect the RBI to sound more dovish.

Globally, Asian markets were mixed in trade. US stocks declined, with the Nasdaq composite falling for the first session in seven, as a lacklustre start to the holiday shopping season mostly overrode data that had a measure of US factory activity slowing less than expected in November.

In commodities, crude prices rebounded from a five-year low, as data suggested that tumbling prices might have started to affect drilling activity in the fast growing US shale oil industry. Brent crude was trading around USD 72 per barrel.